The concentration of an industry simply means the market shares accounted for by the industry’s top firms. There are different ways to measure and to create various indices of market concentration. Why is this important? For centuries major economic powers have struggled for control of their central productive assets. Under feudalism, people fought over land ownership. In the industrial age, revolutions and nationalizations took place over the control of steel and railroads. Today, as we move to a postindustrial, information-based economy, people are fighting over how and by whom entertainment, information and their enabling technologies are delivered. Consequently, there has been a lot of debate over media ownership limitations. The debate is partly about politics and culture and partly about the ability of new and innovative companies to enter and compete in the marketplace.

The Internet’s arrival in the mid-1990s augured the democratization of information, with the promise of many small and varied media outlets vying for the public’s attention. Has that media fragmentation actually happened?

Many people have strong opinions about media ownership and concentration. Pessimists point to larger companies that, having absorbed smaller businesses, now control a shrinking pool of information outlets, while optimists celebrate the Internet for multiplying the number and sorts of information sources. But the Internet is much more concentrated than its image suggests. Many of its major components — broadband access, backbones, portals, search engines, etc. — are highly concentrated. Concentration in the Internet industry, while lower than it was 20 years ago during the Web’s infancy, is much higher than it was 10 years ago.

What concentration trends are happening in the media industry’s other major sectors?

Concentration in the telecommunications and information technology sectors is also lower than it was 20 years ago but higher than 10 years ago. It has declined a bit recently. By contrast, concentration in the mass-media sector — which includes film, television, music, print and electronic entertainment and information — has continuously increased over the last 20 years, especially for the industry’s top five firms. However, mass-media market concentration is much lower than what most critics believe and is usually well below the U.S. Justice Department’s definition of high concentration.

Overall, the move toward greater media concentration is a by-product of digital convergence — the coming together of several different media such as voice, video or text.

Based on recent technological advances and media trends, do you think the mass-media industry will consolidate or fragment in the coming years?

I believe a two-tier network structure will emerge. At the top will be a few big “tent-pole” companies that will coordinate and distribute the production efforts of the second tier, which will comprise thousands of smaller specialist companies. The major firms will produce far less content themselves and assume a larger “storefront” branding role.

How have powerful conglomerates such as Time Warner, General Electric and Disney fared in the face of media concentration?

The conglomerate media structure is actually not working well. Time Warner is under pressure to divest itself of some of its divisions, Viacom has already split itself in several ways and Disney has sold some of its media holdings, including radio stations. Focused media companies such as Comcast, which specializes in local TV distribution, have fared better. In the future, major media firms will increasingly assume an integrator role instead of producing content or owning film- or TV-distribution facilities.

What does increasing media concentration mean for the diversification of information? How do you think the public and government will react if they believe more information is coming from fewer sources?

The First Amendment dictates that the government cannot intervene in content. As a result, the government has historically tended to intervene in the underlying structure and ownership of media markets. Media concentration — both real and imagined — has therefore generated significant agitation in Washington. For example, protests from activists on the left and the right derailed the Federal Communications Commission’s efforts to deregulate media-ownership restrictions. Similar issues of access to and diversity within media are being raised around the world as part of an emerging information-activist movement. Media companies need to address these concerns as part of their management strategies.

Your book identifies some fundamental economic problems occurring in media industries. How do these problems affect media companies’ ability to make money?

One basic problem is that when it comes to media production and networks, fixed costs such as installing cell-phone towers or laying fiber lines for fast Internet access are very high, while marginal costs — those incurred to add each new user — are low. In the highly competitive media environment, companies have dropped prices to low levels that often do not cover their overall operating costs. Therefore, the industry operates in an interesting landscape: consumers devour an ever-increasing number of bits, bytes and minutes of all kinds of media, yet the information sector faces a steady price deflation which causes media producers and distributors to make less money.

In response, media companies consolidate and concentrate in order to regain control over pricing. This works for a while, until a new wave of innovation starts a new cycle. The boom and bust of the dot-com sector in the late 1990s is a perfect example. Looking to the future, it is important to recognize that as all parts of the information sector become increasingly interrelated, the whole information economy becomes more volatile and less stable than the industrial economy.

Who will be the winners and losers in this new media world and why?

Generally, companies that provide scarce elements will fare best. Today, there are three segments of companies in that category: first, suppliers of premium blockbuster content, such as Hollywood film distributors; second, distributors of high-speed residential distribution pipes, such as last-mile fiber and cable networks; and third, makers of essential, interoperable computer software such as Microsoft Windows.

What about Web 2.0 companies such as YouTube and Facebook? Do their early moves suggest a path that is similar to or different from the one the mass-media industry has followed?

The new-media industry is showing tendencies similar to those exhibited by the information technology, Internet and telecommunications sectors. High concentration comes first as innovators enter the market; then, competitors emerge, and prices and profitability drop. But soon consolidation follows.

Eli Noamis professor of finance and economics at Columbia Business School and director of the Columbia Institute for Tele-Information.

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Professor Noam focuses on the economics, management, and policy of media, Internet, and communications, both in America and around the world. He served as New York State's Public Service Commissioner, regulating the telecommunications and energy industries, and on the White House Presidential Board on information technology. His 30 books and over 400 articles cover telecom, film, TV, internet, e-finance, e-commerce and IT.

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